If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied?
A)$145,600 Overapplied
B)$155,610 Underapplied
C)$145,600 Underapplied
D)$155,610 Overapplied

Question

Quizplus · Accepted Answer

The predetermined overhead rate based on capacity is calculated as follows:
Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total units in the allocation base
= ($1,844,800 + $256,800) / 14,400
= $150 per unit
The actual number of units produced is 10,000, so the manufacturing overhead applied should be:
Manufacturing overhead applied = Predetermined overhead rate × Actual units produced
= $150 × 10,000
= $1,500,000
The actual manufacturing overhead incurred is $1,655,610, so the amount of underapplied or overapplied overhead is:
Manufacturing overhead underapplied/overapplied = Actual manufacturing overhead incurred − Manufacturing overhead applied
= $1,655,610 − $1,500,000
= $155,610 underapplied.

If the Company Bases Its Predetermined Overhead Rate on Capacity